Hyundai recall could grow further, sounds warning on quality

SEOUL – South Korea's Hyundai Motor Co <005380.KS> and its affiliate Kia Motors Corp <000270.KS> will take "global action" to fix a potentially faulty brake light switch, after they said they planned to recall almost 1.9 million cars in the United States.

The move may mean the world's fifth-biggest automaker ends up recalling even more vehicles than that number, Hyundai's U.S. record, and is a stark warning that it may have sacrificed quality standards for rapid expansion.

Chairman Chung Mong-koo consistently stresses that quality should come first, and has recently slowed the pace of capacity expansion in favor of stricter quality control, but analysts say the shift in direction has come too late.

"Hyundai has built factories very fast around the globe until recent years, but its quality improvement has failed to keep up with its rapid volume growth," said Kim Phill-soo, a professor at Department of Automotive Engineering at Daelim University College in Seoul.

A Hyundai executive said alarm bells starting ringing in the company after it slid down industry rankings for quality in recent years.

"We have fixed problems, and quality rankings will improve from this year," the executive told Reuters without elaborating further. He spoke on condition of anonymity as he was not authorized to talk to the media.

Last year Hyundai fell to 18th in a key quality survey by J.D. Power and Associates, from 11th in 2011.

"Part of the reason (for the fall) is that Hyundai has been expanding rapidly into new segments and some of the newer vehicles have not performed quite so well as the original vehicles such as Sonata," Dave Sargent, Vice President at J.D. Power and Associates, said in an email interview with Reuters before the recall announcement.

Hyundai will conduct a recall, service campaign or other corrective measures in all countries where vehicles equipped with the stop lamp switch in question have been sold, the company said in a statement on Thursday.

The recall is another problem for the companies, which are deeply worried by the consistently weakening yen which allows their Japanese rivals to sell cars more cheaply in export markets. The yen dropped sharply on Thursday after the Bank of Japan announced aggressive easing measures.

It also comes only months after Hyundai Motor admitted in November it had overstated fuel economies of some cars in North America, a move that damaged its reputation and could cost up to 440 billion won ($394 million) in potential compensation.

Shares in the company slumped 5 percent on Thursday, their biggest daily fall since that admission. ($1 = 1117.6000 Korean won)